When Maurice Levy steps down next year, he will have been the head of Publicis for three decades. With the support of the Badinter family, which founded the company, he built Publicis from a sleepy regional player into the world's third-biggest ad agency.
But this lion of ad land is limping to the end of his tenure. Levy will leave his yet-to-be-identified successor with a long to-do list. Since his plan to merge Publicis with second-largest rival Omnicom fell apart in 2014, the French-based agency has been losing market share to competitors including WPP, Omnicom and Havas. It lost marquee brands such as Procter & Gamble and Coca-Cola when a spate of U.S. contracts went up for renewal last year.
Those contract losses are being felt. Third-quarter sales (excluding acquisitions) grew by only 0.2 percent to reach 2.32 billion euros, the company said on Thursday. The figures narrowly missed analyst estimates and sent the shares down 6 percent.
That takes organic sales growth in the first nine months of the year to 1.9 percent, which is better than 1 percent in the same period last year. But it pales in comparison to the 3.4 percent that Omnicom has achieved in the same period. Publicis's problem isn't about cost controls -- at 17.4 percent its 2015 Ebitda margin was the best among the top five agencies. It's more a question of revenue and coaxing employees to generate more of it. Sales per employee trail its peers.
Publicis replaced managers after the contract losses, and overhauled its structure to ensure disparate agencies worked better together. While the company has won some new business lately, including Wal-Mart, investors will hope more benefits lie ahead.
Worse, the $3.7 billion acquisition of digital agency Sapient in 2014 hasn't yet delivered the hoped-for boost to growth. The deal was designed to help Publicis offer more technology consulting services to clients. Sapient has an army of 8,500 developers in India who build mobile apps and e-commerce systems.
The deal set Publicis apart from rivals and pits it against consultants like Accenture and Deloitte who are creeping onto ad agency turf. Levy cast the deal as a visionary move and promised it would raise group operating margins by 2018. It will be up to his successor to get more out of the business. Publicis's return on invested capital, which includes acquisitions, trails its peers, as this chart shows.
Succeeding the charismatic Levy was always going to be a big task. A board committee has started work, and a decision is expected early next year. Levy has hinted that internal candidates are preferred. Arthur Sadoun, who heads all of Publicis' creative agencies, is a leading candidate, and may share the CEO title with Alan Herrick, who joined with the Sapient deal, according to a recent report in Les Echos.
Whether Levy is asked to stay on as a board member or vice-chairman would be a sign of whether the Badinter family want him to help with the transition or prefer a clean break. Either way, his successor needs find a way to sharpen up the Publicis pitch.
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